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TMI Blog2018 (10) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... is otherwise arbitrary and is thus bad in law and void ab-initio. 2. That on the facts and circumstances of the case and in law, the Hon'ble DRP/ learned AO has erred in reducing the rate of tax depreciation allowable on certain items, characterized as 'computers' by the Appellant (viz. UPS, LAN/ WAN equipment, catalyst switches, network equipments, etc.) from 60 percent to 15 percent, by treating the same as Plant and Machinery and thus, disallowing depreciation amounting to Rs. 19,33,295 to the Appellant. 2.1. That on facts and circumstances of the case and in law, the Hon'ble DRP/ learned AO has failed to appreciate that UPS, LAN/ WAN equipment, catalyst switches, network equipment, etc. are "integral part of the computer system" and have been held to be in the nature of 'Computers' by the Hon'ble Jurisdictional Delhi High Court in the case of BSES Rajdhani Powers Ltd. (ITA No. 1266/ 2010), Orient Ceramics and Inds Ltd. (ITA No. 65 and 66 of 2011) and Citicorp Maruti Finance Ltd. (ITA No. 1712 and 1714 of 2010) and by the Hon'ble Special Bench of Mumbai Tribunal in the case of Datacraft India Limited (ITA No.7462 and 754/Mum/2007). 3. That on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nokia Hungary KFT, under section 40(a)(i) of the Act, without appreciating that the said amount is not chargeable to tax in India as FTS under Article 12 of India - Hungary DTAA, in view of the restritive definition of FTS provided under Article 12 read with the protocol to India - Hungary DTAA. 4. That on the facts and circumstances of the case and in law, the learned AO has erred in not granting depreciation at the rate of 25 percent under the provisions of section 32 of the Act in respect of goodwill amounting to Rs. 9,81,15,000 accounted for by the Appellant in its books of accounts arising out of purchase of networks business, despite of a specific claim having been made by the Appellant before finalization of the order dated November 30, 2012 by the learned AO. 4.1. That on the facts and circumstances of the case and in law, the learned AO has failed to appreciate that the said depreciation claim made by the Appellant is duly supported by the Hon'ble Supreme Court decision subsequently pronounced in the case of CIT vs Smifs Securities Ltd (Civil Appeal No 5961 of 2012) and accordingly was open to be given effect to as per Circular No. 68 dated November 17, 1971 issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely provision of marketing support services, warranty services and other support services using Transactional Net Margin Method ('TNMM') without giving cognizance to the functions, risks and assets ('FAR') analysis of the Appellant vis- a-vis its associated enterprises for international transactions reassociate the networks division. 5.5 That without prejudice, the learned TPO/ Hon'ble DRP has erred, in law and on facts, in not separately bifurcating the costs of the marketing team attributable towards the support provided on the sales made by the Appellant itself vis-a-vis support provided to the associated enterprises and erroneously attributed entire costs of the of marketing team towards the marketing support services provided to the associated enterprises while undertaking separate transaction by transaction analysis using TNMM. 5.6. That without prejudice, the learned TPO/ Hon'ble DRP has erred, in law and on facts in the application of TNMM for transaction by transaction analysis of certain international transactions of Networks division using certain arbitrary filters. 5.7. That, on the facts and circumstances of the case and in law, the learned TPO/ Hon'ble DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law, the learned AO has erred in calculation of interest under section 234B and section 234D of the Act." 3. The assessee company incorporated in India under the provisions of the Companies Act, 1956. For the Assessment Year 2008-09, the assessee company was engaged in the business of manufacturing and trading of telecommunication network equipment and provision of related services such as network design, installation and commissioning. The company also provided support services to major telecom operators and IP service providers in India and to customers of its Associated Enterprises (AE). Further, the company also provided software development and certain network management support services. Furthermore, Nokia Siemens Networks Private Limited India rendered certain marketing support services to its AEs such as providing information on potential customers, providing assistance in marketing products its AE. During the course of assessment proceedings for A.Y. 2008-09, the Assessing Officer referred the matter to Transfer Pricing Officer (TPO) made transfer pricing adjustment to the prices of two international transactions entered into by the assessee viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent of Rs. 1,44,75,008/- on the ground that they form part of the block of assets under plant and machinery, in respect of which depreciation is allowed only at 15%. Basing on the decision of the Hon'ble jurisdictional High Court in CIT vs. BSES Yamuna Power Ltd. (2013) 358 ITR 47 (Del), assessee argued before the learned DRP that these peripherals form an integral part of computer system, and therefore, 60% depreciation must be allowed. Learned CIT(A), however, observed that the issue of allowability of depreciation on computer peripherals is pending before the Hon'ble Supreme Court, and since it did not attain finality, the plea of the assessee cannot be entertained. 6. It is the argument of the learned AR that the equipment in respect of which the depreciation at 60% is claimed does not function on their own and for deriving any functionality they must be connected to the computer equipment, as such they are part and parcel of the computer systems in respect of which depreciation at 60% has to be allowed. He placed reliance on the decisions reported in BSES Yamuna (2013) 358 ITR 47 (Del); Nokia India (P.) Ltd. vs. ACIT (2012) 22 taxmann.com 109 (Del-Tri) & (2012) 20 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral part of the computer systems and the assessee is entitled to the claim of depreciation at 60% by treating the peripherals as part of block of computers. Grounds No. 2 and 2.1 are allowed accordingly." Thus, the facts in the present case are also identical. Therefore, Ground Nos. 2 and 2.1 are allowed. 8. The Ld. AR submitted that Ground Nos. 3, 3.1, 3.2, 3.3 and 3.4 related to disallowance u/s 40(a)(i) aggregating to Rs. 33,27,776 on the ground that payment made to following companies was in the nature of FTS and hence, assessee was liable to deduct tax on the same. The Ld. AR submitted that at the time of the Assessment Proceedings, the assessee could not produced the details as the details were not received from the third parties, but since the same are now available with the assessee, therefore, the assessee is filing additional evidence which has to be decided by the Assessing Officer. Thus, the Ld. AR prayed that this issue be restored to the file of the Assessing Officer. The Ld. DR did not object the same. 9. We have heard both the parties and perused all the relevant material available on record. Since at the time of the Assessment Proceedings, the assessee could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost appropriate method for its benchmarking of international transaction. Search for uncontrolled comparables was made using Prowess and Capitoline database by the Assessee in its Transfer Pricing Study. Assessee had taken 16 comparables in its TP study with an arithmetic mean of 9.71%. Assessee computed its profit level indicator (PLI) at 4.26% on cost which was falling within the arm's length range of +/-5%." The Ld. AR submitted that the assessee is also engaged in providing software development services to its AEs. Thus, it is an undisputed position that assessee's functional profile qua the software development service division is identical to that of the erstwhile entity which has been considered by the Tribunal in M/s Nokia Siemens Networks India (supra). The TPO selected 25 comparables to benchmark the transaction pertaining to software development services division. Subsequently, DRP deleted one of the comparables selected by TPO and thus the final set of comparables comes to 24. Out of these 24 comparables, the assessee wants to exclude 18 comparables and further wants inclusion of three comparables. Thus, the Ld. AR submitted that all the comparables under challenge we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue at any point of time. Therefore, the treatment given to the comparables in case of M/s Nokia Siemens Networks India (supra) by the Tribunal has to be followed in the present assessee's case as well. Ground No. 5.3 is partly allowed for statistical purpose. 15. As regarding to Ground No. 5.4 relating to Network Division i.e. support service segment, this segment is separate from the software development service segment. The Ld. AR submitted that four comparables to be excluded has to be excluded which are Apitco Ltd., IDC (India) Ltd., RITES (Seg), WPCOS Ltd. (Seg). The Ld. AR submitted that these are all functionally different comparables. Therefore, the same should be excluded. The Ld. AR submitted that ICRA Management Consulting Services Ltd. is accepted by the assessee. The Ld. DR relied upon the order of the TPO/AO. 16. We have heard both the parties and perused all the relevant material available on record. We are giving our findings for each comparables hereinafter. 16.1 Apitco Ltd.: This company is a government undertaking and engaged in turnkey implementation, preparation of reports and into core activities and also provides high end technical consultancy. The subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Engineering Consultancy Services and turnkey projects and has diverse business activities. This company has grant in aid by government and the same are treated as fee from other services. Thus, this company is functionally different from the assessee company. Therefore, we direct the TPO to exclude this comparable. 17. Therefore, we remand back the issue to the file of the TPO/AO as per above directions given for each comparables. Thus, Ground No. 5.4 is partly allowed for statistical purpose. 18. As regards Ground Nos. 5.5, 5.6, 5.7, the Ld. AR submitted that the issue should be kept open for future, but at this juncture, the assessee is not pressing and this statement should not be taken into consideration in future as it is related to this assessment year only. The Ld. DR did not object to the same. Therefore, we dismissed Ground Nos. 5.5, 5.6 and 5.7 as not pressed by the assessee. 19. As relates to Ground No. 5.8 regarding not making appropriate adjustments on account of working capital differences between the assessee vis-à-vis the comparables companies while re-determining the ALP of the certain international transactions of the assessee, the Ld. AR submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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